- Kimlun Corp announced yesterday that its wholly-owned subsidiary, Kitaran Lintas Sdn Bhd, is buying 29 land parcels in Kota Tinggi, Johor for RM28.3mil cash.

- The company is buying the contiguous land parcels from Choo Chek Juan @ Choo Ou Kiak.

- The freehold land area of 140.8 acres are located along Jln Kota Tinggi-Pengerang, in an area zoned for housing. The land is located ~2km from the Kota Tinggi town centre with 60% of the area planted with ageing oil palm trees (the remaining 40% are planted with immature trees).

- Kimlun intends to fund the acquisition via a combination of internally-generated funds and/or borrowings, but the breakdown is not finalised yet. Assuming 60% (RM17mil) of the purchase is funded via borrowings, Kimlun’s net gearing is expected to rise marginally to 0.44x (from 0.4x).

- Kimlun said it intends to apply to the authorities to convert the land use of the properties from agricultural to residential within a year. After which, the group intends to build residential properties for sale. The group has yet to ascertain the development potential of the land at this juncture given the approvals needed. In any case, we expect the launch to happen only next year.

- We are not surprised with Kimlun’s landbanking moves as it intends to widen its revenue mix to include contributions from property. Currently, Kimlun is developing the HYVE project in Cyberjaya (72% take-up rate at end-Dec, GDV: RM234mil), and 131 residential homes in Pontian, Johor (GDV: RM50mil).

- Besides that, Kimlun is planning to launch 41 units of bungalow lots in Shah Alam (8.9 acres) as well as SOHO and retail units in Medini Iskandar (5.3 acres; GDV: RM447mil).

- Nevertheless, in the bigger scheme of things, contributions from the property arm will be minor (8% of total revenue) vis-à-vis its construction and manufacturing arms.

- We maintain our numbers for now. While Kimlun is a potential beneficiary of upcoming jobs for the KVMRT2 and LRT3 projects, we only expect packages to be awarded next year. Our HOLD call remains.

Source: AmeSecurities Research - 15 May 2015